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Food Prices Drop, Thanks to Costco Effect

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Food Prices Drop, Thanks to Costco Effect

Inflation figures for June reflect the impact of the opening of Costco warehouse club on the retail industry in Iceland, according to Arion Bank’s research division, reports business newspaper Viðskiptablaðið.

Arion Research pointed out in a report that food and drink prices have fallen by 1.2 percent from the previous month. The price of a typical ‘food basket,’ used as an indicator of inflation, has also decreased by 3.5 percent over the last 12 months.

Arion Research said the decline had exceeded their expectations. The likely cause is an indirect impact from the recent opening of Costco, and the reduction in prices could actually be higher, if Costco’s direct impact on price calculations were taken into account. Food and beverage prices have been steadily declining since the beginning of the year, and the appreciation of the króna has clearly had something to say in this.

Arion Research forecasts low inflation going forward. Prices of domestic goods and services have risen very little over the past 12 months, but the main driver of growth was public services. Thus, it is hardly possible to talk about domestic inflationary pressures, as the situation stands now. So far, the króna has helped limit inflation, but it is hard to say how long Icelandic companies will continue to benefit from this, and there have been signs of the situation giving way in recent weeks.

Numerous wage agreements are up for renewal this year, and increased wage costs for domestic companies could lead to higher price levels, although the impact of wage increases in May has been minor, at least for now, according to the report. The Arion Research team wrote that while it will be interesting to see how these points develop over the next few months, inflation is unlikely to rise in the near future.